Stones separated from oil

LUKOIL finally sold its non-core diamond business - owning Grib pipe "Archangelskgeoldobycha" (AGD). However, the interlocutors "b" indicates that it could be more of a "club deal": and LUKoil and AGD bought "Discovery Holding" the same shareholders as the transaction amount - $ 1.45 billion - looks much too high. The industry does not preclude the resale of the asset, but in "The opening of the Holding" state of the strategic nature of the investment. The prices limited growth potential AGD: the license requires a transition to underground mining of diamonds, experts warn.

LUKOIL signed a "Discovery Holdings' agreement for the sale of $ 1.45 billion" Arkhangelskgeoldobycha "owns a diamond mine Grib in the Arkhangelsk region, reported side. Close the deal should be in the first quarter of 2017 after the approval of government agencies. Sources "Kommersant" people familiar with the situation say that the fund may deal VTB - if this decision is taken, the loan (amount not specified) will be issued under the pledge of shares and assets of the AGD. The bank declined to comment, in the "Discovery Holding" said that they would use the equity and debt financing.

The LUKOIL noted that the sale of non-core assets "to effectively monetize shareholder value." "The funds will be used for debt reduction, and so we have low debt, and we also reduced by more than $ 1 billion.", - He said co-owner and vice-president of LUKOIL Leonid Fedun. At the end of the third quarter, the net debt of LUKOIL -. 494 billion rubles, 81% is denominated in dollars (about $ 6.2 billion).

Total reserves of the Grib pipe are estimated at 98.5 million carats of recoverable -. To $ 11 billion LUKOIL has invested in the project over $ 1 billion and reveals that the rate of return - 16%, payback - seven or eight years. Production began in the summer of 2014, in 2015, the AGD has received 3.36 million carats in the first half of 2016 - 1.85 million carats. During this time, the trader - Dutch Grib Diamonds NV - sold over 5 million carats for $ 400 million in revenue in 2015, the AGD -. 11.96 billion rubles, loss -. 244 million rubles.

LUKOIL became the principal owner of AGD in 1997, and by 2003, consolidated 99.69% by acquiring a blocking stake from Conoco and "Rosneft". Diamonds were discovered in 1997, OOO "Diamond Beach" - a joint venture between AGD (then state-owned company "Arkhangelgeology"), Canmet Resourses Ltd. (Later - Archangel Diamond Corp., ADC) and the company IBME. Foreigners since 1998 accused LUKOIL that the license is not transferred AGD "Diamond Coast", but did not succeed in the courts. The controversy did not affect the negotiations with the candidates for AGD, says a source, "Kommersant," close to one of the parties.

On the possible sale of non-core AGD talked for a long time, but the interlocutors "b" close to LUKOIL shareholders claimed that an asset like the chapter and the main owner of the oil company Vagit Alekperov. Buying AGD considered Alrosa, say two "Kommersant" source. One of them said that the company estimates the asset "significantly less than $ 1 billion." But there have been questions about the future of the asset: from 2021 until AGD license should begin an expensive underground mining, and in 2023 may result in reserves for open-cast mining, which will increase costs and may temporarily reduce production. Another source of "Kommersant" said that ALROSA was ready to pay for the AGD to $ 500 million, evaluating the geology of the Grib pipe as a complex.

Sources close to the shareholders of "Discovery Holding" to indicate that the parties to the transaction "are not strangers to each other": Vagit Alekperov and Leonid Fedun own in holding 19.9%, VTB - 9.99%. "Right now, the role of investment banks takes the narrow circle of entrepreneurs and state-owned banks," - ironically one of the "Kommersant" interviewees. Several sources of "b" in the industry claim that "Opening Holding" - the final buyer. "They need a currency that can generate AGD", - said one of them. Among the shareholders of the investment group as Alexander Nesis and ICT partners (9.8%) and Alexander Mamut (6.67%), which together with the structure of "Discovery Holding Company" are co-owners of a gold miner Polymetal. Perhaps in the future we plan to sell or attract Polymetal in AGD also engage in the industry. But the source of "Kommersant", close to the shareholders of Polymetal, rejects these assumptions (the company did not respond to calls to "b").

"The deal needs to LUKOIL to reduce debt or clearing the balance, and its price discourages applicants who could redeem AGD" Discovery Holding "," - says the source "b" in the industry. According to him, holding a can "keep the asset within the complex circuits or to resell the major shareholders of LUKOIL". But options to sell back no objection to the source "b" close to one of the parties to the transaction. "We have no such plans, AGD - a long-term strategic investments in operating assets, which generates profits and has considerable potential for development," - say in the "Opening of the Holding Company". They believe that diamond prices will increase in the coming years, which will allow AGD to increase profits and increase shareholder value.

Director of Metallurgy and Mining Prosperity Capital Management Nikolay Sosnovsky, pointed out that the transaction takes place at a price 7-10 EBITDA AGD, in the latter case it is twice as expensive than the estimated market ALROSA. But if AGD reach full capacity in the coming years, and diamond prices will not fall, then the transaction can be estimated at 5-6 EBITDA ($ 250-300 million per year), which is not very expensive for the industry. However, according to experts, by AGD upside may be limited, if it is necessary to invest several hundred million dollars in underground mining. But even LUKOIL planned to ask Rosnedra change the license, not to "go into the subway or postpone this point," says "Kommersant" source.